# CVP formula to compute break-even

The following are the monthly fixed expenses for Peyton Travel:

Office rent: $3,000.00

Depreciation of office furniture 200.00

Utilities 110.00

Telephone 520.00

Reservation Service Fees 380.00

Travel Agent Salaries 1,400.00

Variable expenses include the following:

Travel Agent Commission 5.0% of sales

Advertising 6.0% of sales

Supplies and Postage 1.0% of sales

Telephone and Reservation Service usage fees 3.0% of sales

Use the contribution margin ratio CVP formula to compute Peyton Travel's break-even sales in dollars. If the average sales price of a ticket is $660.00; how many tickets must be sold to reach break-even?

Use the income statement equation [revenue - (variable expense + fixed expense) = operating income] to compute the dollar sales needed to earn a target monthly operating income of $6,290.00. How many tickets is this if the average sales price of a ticket is $660.00?

Assume the average sales price decreases to $440.00 per ticket. Use the contribution margin approach to compute Peyton Travel's new break-even point in tickets sold. How does this compare to your answer in part a)?

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#### Solution Preview

Please see the attached Excel spreadsheet.

Fixed Costs

Rent 3,000

Depreciation 200

Utilities 110

Phone 520

Service Fees 380

Salaries 1,400

Total Fixed Costs 5,610

Variable Costs @ $660 @440

Commission 5% 33 22

Advertising 6% 39.60 26.4

Supplies 1% 6.60 4.4

Service Fees 3% 19.80 13.2

Total Variable Costs 99.00 66.00

Average ...